Bausch Health(BHC) - 2023 Q3 - Quarterly Report

Part I. Financial Information Item 1. Condensed Consolidated Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements for Bausch Health Companies Inc. as of September 30, 2023, and for the three and nine-month periods then ended Note 4. Licensing Agreements and Acquisitions Bausch + Lomb acquired XIIDRA® and other ophthalmology assets for an upfront cash payment of $1.75 billion, with total preliminary purchase consideration of $1.753 billion - Bausch + Lomb acquired XIIDRA® from Novartis for an upfront cash payment of $1.75 billion on September 29, 2023. The deal also includes potential future milestone obligations of up to $750 million[99][122] XIIDRA® Acquisition Consideration | Component | Amount (in millions) | | :--- | :--- | | Cash consideration paid at closing | $1,750 | | Estimated fair value of contingent consideration | $3 | | Preliminary aggregate purchase consideration | $1,753 | - In July 2023, Bausch + Lomb acquired the Blink® product line of eye and contact lens drops for an upfront cash payment of $107 million[128] - In January 2023, Bausch + Lomb acquired AcuFocus, Inc., an ophthalmic medical device company, for an upfront payment of $35 million, plus potential future milestone payments[128] Note 8. Intangible Assets and Goodwill The company reported net intangible assets of $6.73 billion and goodwill of $11.19 billion as of September 30, 2023, with significant impairments in Q3 2023 Goodwill Impairments in 2022 & 2023 | Reporting Unit | Impairment Date | Impairment Amount (in millions) | | :--- | :--- | :--- | | Dermatology | Q2 2022 | $83 | | Dermatology | Q3 2022 | $119 | | Neurology | Q4 2022 | $622 | | Dermatology | Q3 2023 | $151 | | Neurology | Q3 2023 | $251 | - The Q3 2023 goodwill impairments were triggered by revised forecasts indicating lower future financial results for the Dermatology and Neurology units, combined with increases in market interest rates[16][152] - The Salix reporting unit was tested for impairment in Q3 2022 due to the Norwich Legal Decision regarding Xifaxan patents, showing limited headroom with fair value exceeding carrying value by less than 5%[10][26] - The Bausch + Lomb reporting units (Vision Care, Surgical, Pharmaceuticals) were tested in Q2 and Q4 of 2022, with fair values exceeding carrying values by more than 25%, indicating no impairment risk[7][36] Goodwill Balance by Segment (in millions) | Segment | Dec 31, 2022 | Sep 30, 2023 | | :--- | :--- | :--- | | Bausch + Lomb | $5,246 | $5,262 | | Salix | $3,159 | $3,159 | | International | $789 | $811 | | Solta Medical | $115 | $115 | | Diversified | $2,238 | $1,840 | | Total | $11,547 | $11,187 | Note 10. Financing Arrangements As of September 30, 2023, total long-term debt principal was $21.0 billion, with key activities including a $2.47 billion debt reduction and new $1.9 billion debt for the XIIDRA acquisition Total Long-Term Debt (in millions) | Date | Principal Amount | Net of Premiums, Discounts, etc. | | :--- | :--- | :--- | | Dec 31, 2022 | $19,110 | $20,766 | | Sep 30, 2023 | $20,952 | $22,430 | - In September 2022, the company completed an exchange offer, swapping $5.6 billion of existing unsecured notes for $3.1 billion of new secured notes, reducing outstanding principal by $2.47 billion and resulting in a net gain of $570 million[157][158][209] - In June 2023, the company established a new non-recourse Accounts Receivable (AR) Credit Facility for up to $600 million, with $350 million outstanding as of September 30, 2023[223][224] - In September 2023, Bausch + Lomb financed the XIIDRA acquisition by issuing $1.4 billion in new 8.375% Senior Secured Notes due 2028 and entering a new $500 million term loan facility[226][263] - As of September 30, 2023, the company was in compliance with its financial maintenance covenants[156] Note 17. Legal Proceedings The company faces significant legal proceedings, including an appeal of the Norwich Legal Decision on Xifaxan® patents, ongoing individual investor lawsuits, and antitrust litigation - The company is appealing an August 2022 court decision (Norwich Legal Decision) that found patents for Xifaxan®'s use in treating IBS-D to be invalid, while upholding patents for hepatic encephalopathy (HE) until October 2029[335] - While the main U.S. securities class action was settled, twenty-one individual "opt-out" investor actions remain pending against the company[290] - The federal class action for the Glumetza® antitrust litigation has been settled, but related state-law insurer litigations are ongoing, with a trial scheduled for December 2024[305][331] - The company is fully indemnified by Johnson & Johnson for all potential liability and legal costs arising from product liability lawsuits involving the Shower to Shower® body powder product[390] Note 18. Segment Information For the nine months ended September 30, 2023, total revenue was $6.35 billion, with Bausch + Lomb contributing $2.97 billion and Salix $1.67 billion Segment Revenues and Profits (Nine Months Ended Sep 30, 2023) | Segment | Revenues (in millions) | Segment Profit (in millions) | Profit Margin | | :--- | :--- | :--- | :--- | | Salix | $1,667 | $1,129 | 68% | | International | $781 | $236 | 30% | | Solta Medical | $244 | $114 | 47% | | Diversified | $684 | $417 | 61% | | Bausch + Lomb | $2,973 | $699 | 24% | | Total | $6,349 | $2,595 | 41% | - Sales of the Xifaxan® product line represented approximately 80% of the Salix segment's revenues[381] Major Customers (% of Total Revenues) | Customer | 9M 2023 | 9M 2022 | | :--- | :--- | :--- | | AmerisourceBergen Corporation | 19% | 16% | | McKesson Corporation | 15% | 13% | | Cardinal Health, Inc. | 13% | 11% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, strategic initiatives, and business trends, including the Bausch + Lomb separation, capital structure management, and R&D investments Overview Management's overview highlights the continued strategy to separate the Bausch + Lomb business, significant debt reduction efforts, and key growth drivers including R&D and strategic acquisitions - The company continues to plan the full separation of its Bausch + Lomb eye health business, which is subject to achieving targeted debt leverage ratios and receiving necessary approvals[414] - In 2022, the company reduced its aggregate debt principal by approximately $3.8 billion through a series of transactions, including a debt exchange offer that alone reduced principal by $2.47 billion[416][426] - Strategic growth initiatives include R&D on a new Rifaximin formulation for OHE, Amiselimod for ulcerative colitis, and the recent FDA approval of CABTREO™ for acne[469][470][492] - The company faces potential loss of exclusivity (LOE) and generic competition for several branded products between 2023 and 2027, including Aplenzin®, Bryhali®, and Prolensa®[509] Results of Operations Q3 2023 revenues increased 9% to $2.24 billion, but operating income sharply declined to $14 million due to $283 million in goodwill impairments Financial Performance Summary (in millions) | Metric | Q3 2023 | Q3 2022 | Change | 9M 2023 | 9M 2022 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | $2,238 | $2,046 | +$192 | $6,349 | $5,931 | +$418 | | Operating Income | $14 | $244 | -$230 | $601 | $690 | -$89 | | Net (Loss)/Income to BHC | $(378) | $399 | -$777 | $(553) | $185 | -$738 | - The primary driver for the sharp decrease in Q3 2023 operating income was a goodwill impairment charge of $402 million, compared to $119 million in Q3 2022[534][576] - Salix segment revenue grew 13% in Q3 2023 to $614 million, driven by higher volumes and pricing for products including Xifaxan®[597] - Bausch + Lomb segment revenue increased 7% in Q3 2023 to $1.007 billion, reflecting volume growth, price increases, and contributions from the Blink® acquisition[625] Liquidity and Capital Resources Net cash from operating activities significantly improved to $642 million for 9M 2023, while total debt principal increased to $21.0 billion primarily due to the XIIDRA acquisition Cash Flow Summary (Nine Months Ended Sep 30, in millions) | Cash Flow | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $642 | $(1,203) | +$1,845 | | Net cash used in investing activities | $(1,997) | $(167) | -$1,830 | | Net cash from financing activities | $1,554 | $(198) | +$1,752 | - The $1.8 billion positive swing in operating cash flow was primarily due to a decrease in payments for accrued legal settlements compared to the prior year[676] - Total debt principal outstanding was $20.95 billion as of September 30, 2023, with significant maturities scheduled for $2.8 billion in 2025, $6.6 billion in 2027, and $7.2 billion in 2028[730][432] - As of September 30, 2023, $360 million of the company's cash was held by Bausch + Lomb entities and is generally not available to support the operations of other Bausch Health legal entities[704]